Biryani and borrowing

Looking for a massive lending expansion without impairments? JOHN NEEDHAM, Director of Risk, Group Operations at RBS, finds some astonishing answers in the boisterous entrepreneurial backstreets of Chennai.

I’d read up about microfinance when I was getting ready for my recent business visit to Chennai – it used to be Madras, India’s fourth most populous metropolitan area on the Bay of Bengal. But nothing really prepares you for the excitement and fascination of seeing first hand just how this type of finance can transform the lives of so many in a boisterous city like this.

With colleagues in RBS Global Banking & Markets India, who drive the bank’s microfinance initiatives there, we’d arranged a day with one of the companies we support, Equitas Micro Finance India Private Ltd. In a little over two years, Equitas has amassed almost one million customers, many of whom have successfully repaid their first loan and have come back for more.

I met Equitas Loan Officer Ms Saranya down a narrow street amongst crowded flats in the heart of a vibrant community. Washing was hanging out to dry in the 30-degree heat; children were running everywhere; men were repairing a battered old motor-bike. Around 20 women were greeting each other and chatting. They meet at the same time here every two weeks to hand over cash to fulfil their loan and interest repayments.

The loans average 7,000 Rupees (£100) each. The borrowers are organised in ‘clubs’ of five. This is the system’s real credit strength – it’s a social bond, they’re all neighbours helping each other to repay on time. Astonishingly, the default rate is less than 1%.

After a welcome, the leader of the group Ms. Prema recites their ‘vision’ statement which everyone repeats with great enthusiasm. The sense of pride and belonging is palpable. The money is handed over and counted by the women – no need for tellers here! A large yellow ledger is updated and the Loan

Officer stamps passbooks as a receipt for each customer. She quickly checks the cash before heading off to her next group. She has ten such meetings daily, a hectic schedule interrupted only for a quick lunch and a couple of visits to the local branch to drop off her cash.

With their repayments made, the women eagerly show me some of the businesses they’ve established with their loans. A small shop in a simple brick building is where Ms Muthulakshmi sells sweets, cigarettes and other small items. Her mother and husband have been minding the counter while she was away.

A loud shout heralds the arrival of a heavily laden fruit and vegetable cart pushed by one of the husbands selling his wares to householders. I’m then ushered into a ground-floor house where Ms Noorjahan makes vast amounts of spiced biryani in huge aluminium pans like large buckets. Her husband sells it at lunchtime to workers at a nearby market.

At the top of the street we meet Mr Nalini who has a flourishing business ironing clothes for people in the surrounding flats. He employs five men and eagerly tells us about his turnover and profit. His passbook shows a healthily growing balance. He recently paid for his eldest son’s wedding and jokes about only having one more wedding to pay for.

His employees collect the clothes and iron them with enormous charcoal filled irons before delivering them back to their customers. It’s clearly a booming business – there are piles of brightly coloured clothes everywhere you look.

The local Equitas branch is at the end of an arcade of small shops – you really have to know where to look to find it. It’s their oldest Chennai branch, a simple room with little technology save for a note-counter and a couple of PCs. The most striking item is a large white board in full view of the customers with the branch performance targets and figures on the wall!

At the Equitas head office, we meet S. Bhaskar, Chief Operating Officer and Suchindran V.G., Vice President & Head of Treasury and Risk. They explain that recent significant efficiency savings have been passed on to their customers in lower interest rates. (I haven’t heard of many banks in Europe or the US making such a claim!)

In the back-office centre on another floor, around 60 staff check KYC (yes, they also comply with similar Know Your Customer legislation to ourselves), processing new accounts and maintaining customer records.

The centre is run by S. Sethupathy who started as a factory engineer. With that background, he has engineered every application so that it’s imaged with the customer’s photograph attached, and much of the form rendered as simple tick boxes which are automatically read and processed by the Equitas systems. He talks enthusiastically about “6 Sigma” and “Lean” and I’m delighted to offer him and his colleagues the chance to visit our own Chennai centres to exchange best practice.

Sadly the visit is over. I’ve had a fantastic morning with the team. Their rightful pride in what they do fills me with an overwhelming sense of humility. Microfinance really does work and, across India, Africa and in other developing countries, it contributes significantly to economic growth in a way that helps people help themselves out of poverty.  

About microfinance
Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services such as loans and finance for commerce.

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